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What is the Average Personal Loan Interest Rate?

Ben Luthi
Average personal loan interest rate
Average personal loan interest rate

Personal loans are among the most versatile forms of credit. With few exceptions, you can use them for just about anything you want. Similar to credit cards, home equity loans and lines and credit (HELOCs), and other borrowing options, personal loans can be used to consolidate debt, pay for home improvements, cover emergency expenses, and more. 

However, interest rates can vary wildly between those options, so it’s important to know what to expect before you apply. Read on to learn more about the interest rates available for different types of personal loans. 

What’s the average personal loan interest rate? 

According to the Federal Reserve, the average personal loan interest rate for a two-year loan is 10.16%, as of the third quarter of 2022. That may seem high because current personal loan interest rates are on the rise — the average rate was as low as 8.73% in the second quarter of 2022.  

Compared to credit cards, personal loans can be more affordable; the average credit card interest rate is 18.43%, and with no set repayment plan, credit cards can make it easier to remain in debt longer. 

On the flip side, home equity loans and HELOCs tend to charge lower interest rates than personal loans, primarily because you’re using your home as collateral to secure the debt. This added security reduces the risk of the loan to the lender. According to Bankrate, the average interest rates for home equity loans and HELOCs are 7.69% and 7.93%, respectively.  

Types of personal loans 

There are two types of personal loans: unsecured and secured. Here’s how each works and the benefits and drawbacks to consider. 

Unsecured personal loans 

Most personal loans are unsecured, which means you don’t have to put up collateral to get approved. If you can’t keep up with your monthly payments, the lender won’t seize any of your assets to force repayment. However, they may send your debt to collections or file a lawsuit to try to get you to pay. 

With that said, unsecured loans can be beneficial if you don’t have any assets you can readily use as collateral, or if you don’t want to tie up an asset for the length of your repayment term. At the same time, unsecured loans tend to charge higher interest rates than secured ones. 

Secured personal loans 

Secured personal loans are less common than unsecured personal loans. Depending on the lender, you may be able to use a savings account, certificate of deposit, vehicle, or even your home as collateral for a secured personal loan. 

The result is a lower rate, but if you fail to repay the debt, the lender can seize your underlying collateral to pay off the remaining balance.  

Types of personal loan interest rates 

For the most part, personal loan interest rates are fixed, but some lenders offer variable interest rates as well. Here’s what you need to know about the two types of interest rates: 

  • Fixed rates: As their name suggests, fixed interest rates remain the same for the life of your personal loan. This ensures that your monthly payments will stay the same amount as well. Fixed rates may initially be higher than variable rates, but the tradeoff is knowing your rate and payment will never increase. Fixed interest rates are also the standard for home equity loans. 
      
  • Variable rates: If your lender offers a variable rate, that means the rate and your monthly payment can fluctuate with the market. This may be good news if interest rates are generally going down, but it can end up costing you more if rates increase. Before you apply for a variable rate personal loan, consider the potential risk of your rate going up. You should also check with the lender to find out how often the rate will adjust. Variable rates are common with credit cards and HELOCs. 

For the most part, it’s best to stick with a fixed interest rate because it offers more certainty. But if you have a short repayment term and want to take advantage of a lower starting variable rate, or you anticipate market rates will decrease, a variable rate could be worth considering. 

What determines the interest rate on a personal loan? 

If you’re wondering what is a good interest rate on a personal loan, the answer is: it depends. A lot of factors go into determining a personal loan interest rate. Here’s a breakdown of each: 

  • Lender: Each lender has its own way of assessing risk, so interest rate ranges can vary with each one. As a result, it’s a good idea to shop around and compare multiple lenders before applying. 
     
  • Collateral: Secured loans tend to offer lower interest rates, with some lenders going as low as roughly 2% to 4%. Unsecured loans, on the other hand, can range from about 6% to 36%. 
     
  • Credit profile: Having a history of making good credit decisions can help you secure a lower interest rate on a personal loan. In addition to your credit score, lenders may also review your credit report for negative items, such as past due payments, collection accounts, bankruptcies, and more.
  • Debt-to-income ratio: Lenders will typically have a minimum income requirement, but they’ll also look at how much of your current income is going toward debt payments. If your debt-to-income ratio is high, it could result in a higher interest rate or even a denial.  
     
  • Loan amount: The more you borrow, the more risk the lender is taking on in the event that you default. As a result, higher loan amounts typically come with higher interest rates. 
     
  • Repayment term: A longer repayment term can help make your monthly payments more affordable, but they also tend to come with higher interest rates compared to shorter terms. 

Personal loan rates by credit score 

Improving your credit can help you secure a lower interest rate. According to Bankrate, here’s how average interest rates change with different credit score ranges:  

Credit score range 

Average interest rates 

720-750 

10.73% – 12.50% 

690-719 

13.50% – 15.50% 

630-689 

17.80% – 19.90% 

300-629 

28.50% – 32.00% 

 

Remember that these are averages, and your actual interest rate could differ. Depending on your full credit and financial profile, you may be able to secure a lower interest rate, potentially even in the single digits.

Compare Personal Loan Offers From $600 to $100,000

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Compare Personal Loan Offers From $600 to $100,000

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When should you consider a personal loan? 

A personal loan can make sense in many circumstances, but it’s not always the best financing option, particularly if you can get a less expensive option elsewhere. Here are some scenarios where you might consider getting a personal loan: 

  • You’re consolidating high-interest debt: If you want to pay down credit card and other high-interest debt more quickly, a personal loan may be able to help. You may even be able to get a lower interest rate in the process. However, if you have good or excellent credit, you may also consider a balance transfer credit card, which can offer an introductory 0% APR for the first year or longer. 
     
  • You’re making home improvements: A home equity loan or HELOC may have a lower interest rate, but they can also come with expensive closing costs. What’s more, they’ll require your home as collateral and may limit how much you can borrow based on the equity you have in the property. A personal loan may cost more, but it can also give you some more flexibility. However, you may consider a HELOC if you have ongoing renovation plans and don’t want to apply for multiple personal loans over time. 
     
  • You have emergency expenses: If you’re dealing with an unexpected financial emergency, a personal loan can be less expensive than a credit card. Additionally, home equity loans and lines of credit can take several weeks to fund. If you can wait for a few days, most personal loans can fund within that time. If you need the money right away, though, you may consider using a credit card and then paying off the balance with a personal loan later. 
     
  • Other large expenses: Whether it’s a wedding, a once-in-a-lifetime vacation or another large purchase, a personal loan can be worth considering if it can save you money. However, think carefully about going into debt for something that doesn’t improve your financial situation. Consider the long-term impact of monthly payments and how they might affect other important financial goals and decisions. 

Before you apply for a personal loan — or any type of credit for that matter — make sure you understand all of the benefits and drawbacks and how they relate to your situation to determine the right path for you. 

Check personal loan rates with Purefy 

Interest rates for personal loans can vary, so it’s important to compare rate quotes from multiple lenders before you decide where to apply. With Purefy, you can get pre-qualified and view rate quotes from multiple lenders side by side, making it easier to compare your options. What’s more, the process won’t hurt your credit score.  

As you compare your options, look at more than just the interest rate. You may also consider repayment options, origination fees, loan limits, customer satisfaction, and other features that are important to you. 

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